Payroll Compliance Audit : Bringing Clarity to a Complex Payroll Review
A payroll compliance audit can give an organisation clarity and confidence when something does not look right.
In 2025–26, the Fair Work Ombudsman recovers $453 million for workers, as Booth urges compliance common ground reported recovering $453 million in unpaid wages and entitlements for more than 181,000 Australian workers. For employers, this is a timely reminder that payroll accuracy is not simply an administrative matter. It is an important part of good governance, sound financial management and maintaining trust with employees.
Payroll concerns often begin with a simple question. Why is an employee’s leave balance different? Was a change in hours recorded correctly? Did a former employee receive the right final payment?
The answer is not always immediately clear.
Changing work arrangements, payroll system transitions and incomplete historical records can make a straightforward question difficult to resolve. When that happens, employers need a calm, careful and evidence-led response through a payroll compliance audit.
Understanding the Challenge
WCA Solutions was engaged by a medium-sized, not-for-profit education industry association in Western.
The organisation employs approximately 70 people across professional, advisory, operational and corporate roles. The review extended to approximately 150 current and former employees over a six-year period, making it a significant payroll compliance audit engagement.
Following the implementation of a new payroll system in 2020, the organisation identified a risk that some historical leave balances had not been entered or accrued correctly.
The concern initially related to time off in lieu. As the organisation examined the issue more closely, annual leave, personal or carer’s leave and long service leave also required review. For former employees, there was an additional question: had inaccurate leave balances affected their final termination payments?
The organisation wanted to respond responsibly and fairly. Before deciding what action was required, it needed to understand the potential scale of the issue and establish a reliable basis for assessing each employee’s entitlements.
A standard payroll reconciliation would not have been enough. The organisation needed an independent payroll compliance audit capable of working through years of employee records, changes to working arrangements and different leave entitlements.
Looking Beyond the Payroll Balance
Historical payroll reviews can become complicated quickly.
Employees may move between full-time and part-time work, change their contracted hours, take extended leave or receive different benefits over time. Payroll records may not always clearly show when an entitlement changed or why a particular setting was applied.
In this engagement, annual leave entitlements varied across the workforce. Personal leave, long service leave, TOIL, paid and unpaid leave, Christmas closure arrangements and additional leave benefits also needed to be considered.
Some historical part-time working patterns were not fully available. Assumptions were therefore necessary, but they needed to be reasonable, consistent and clearly disclosed.
The purpose of the employee underpayment review was not simply to find differences in a spreadsheet. It was to understand why those differences existed and determine which matters required further evidence, correction or remediation.
For organisations facing similar uncertainty, a payroll compliance audit provides a structured way to move from concern to evidence.
How We Helped
We began by working with the client to agree on the audit period, employee population, leave categories and available source records.
Payroll system reports were used as the primary source for employment dates, contracted hours, recorded leave, TOIL and existing balances. Where information was incomplete or required interpretation, we documented the limitation rather than presenting the result as more certain than the evidence allowed.
Each employee’s service was then divided into relevant calculation periods. Where contracted hours, employment status or annual leave entitlements had changed, the calculations reflected the conditions applying at that time.
This was an important part of the payroll compliance audit. Applying an employee’s current hours or entitlements across their entire employment history could have created an inaccurate result.
Our consultants developed employee-level calculation models covering annual leave, personal or carer’s leave and long service leave. Recorded TOIL was also considered where relevant.
Paid leave was treated consistently for accrual purposes, while extended periods of unpaid leave were assessed separately. Controls were built into the calculations to reduce the risk of overlapping leave records causing accruals to be counted more than once.
Due to the volume of historical information, the calculations were divided across several working models. This made the data easier to manage and supported careful quality assurance throughout the payroll compliance audit.
Working Carefully With Historical Data
A reliable historical payroll audit needs to recognise the limitations of the available records.
Where part-time working patterns could not be fully reconstructed, WCA Solutions documented the issue and applied a consistent, agreed assumption intended to minimise the risk of under-accruing employee entitlements.
This transparency was essential.
The client needed to understand which records had been relied upon, where assumptions had been made and what additional evidence could change an outcome.
A well-managed payroll compliance audit should never operate as a black box. The organisation should be able to understand the methodology and follow how each material result was reached.
This level of transparency also helps ensure a payroll compliance audit can be explained clearly to executives, boards, employees and professional advisers.
Testing the Potential Variances
A difference between a reconstructed entitlement and a payroll balance does not automatically establish that an underpayment has occurred.
A variance may arise from a payroll setting, incomplete historical data, an entitlement change or the way a leave transaction was recorded. Each material difference needs to be considered in context.
Following the initial leave accrual audit, WCA Solutions selected employees with larger or more complex variances for deeper review.
This included completing manual accrual calculations, reviewing additional leave reports, checking leave deductions and confirming when leave entitlements changed. Standard working hours, Christmas closure arrangements and additional leave benefits were also considered.
That deeper testing helped distinguish possible entitlement issues from system or data anomalies. It also gave the organisation greater confidence in the payroll compliance audit methodology.
Throughout the engagement, we followed the evidence carefully. We did not jump to conclusions or treat every numerical difference as a confirmed liability.
Creating a Clear Way Forward
WCA Solutions prepared a detailed audit memorandum, employee-level calculation models and a documented methodology setting out the assumptions and limitations of the review.
The completed payroll compliance audit gave the organisation a clearer basis for prioritising records, validating potential differences and planning its response.
The work identified records requiring further review and provided a practical foundation for any corrections, employee communications or remediation that may be necessary.
Importantly, the engagement delivered more than calculations. It helped the organisation understand how potential discrepancies may have arisen and where its payroll systems, processes and controls could be strengthened.
This is central to our approach to payroll remediation services. The immediate task is to establish whether employees received their correct entitlements. The longer-term opportunity is to improve payroll governance and reduce the risk of the issue recurring.
Why a Payroll Compliance Audit Matters
Payroll compliance is attracting increasing attention from Australian employers and regulators.
During 2025–26, the Fair Work Ombudsman almost doubled its proactive investigations, increasing activity by 86 per cent to more than 2,680 investigations. Recoveries from proactive investigations exceeded $45 million for 13,803 workers.
These figures reinforce an important point. Payroll compliance is connected to employee trust, financial reporting, organisational reputation and good governance.
Mistakes can happen, particularly where systems, working arrangements and entitlements change over time. What matters is how an organisation responds when a concern is identified.
A proactive payroll compliance audit can help an employer establish the facts, address potential risks and make fair, informed decisions.
When It May Be Time to Review Your Payroll
An independent review may be appropriate when an organisation has implemented a new payroll system, identified inconsistent leave balances or received questions from employees about their wages, entitlements or final payments.
Other warning signs include unexplained differences between employment records, reliance on manual payroll workarounds, incomplete historical information, or uncertainty about TOIL, overtime and leave.
These signs do not necessarily mean an underpayment has occurred. They do mean it is worth taking a closer look through a properly scoped payroll compliance audit.
Practical Support When the Details Matter
At WCA Solutions, we understand that potential payroll issues can feel overwhelming.
There may be years of records to examine, competing interpretations to work through and important conversations to manage. Boards and business leaders want confidence in the process. HR, finance and payroll teams need practical support. Employees deserve to be treated fairly.
Our consultants combine workplace relations knowledge, detailed analysis and practical commercial experience. We work alongside clients to understand the issue, test the available evidence and explain the findings in plain language.
Our support includes payroll compliance reviews, leave accrual audits, historical entitlement calculations, employee underpayment reviews and remediation planning.
Our approach to a payroll compliance audit is careful, collaborative and tailored to the circumstances of each workplace.
For organisations seeking experienced payroll compliance consultants Perth, Western or nationally, WCA Solutions provides clear and practical support when the details matter.
Let’s Talk About Your Payroll Concerns
If your organisation has identified unusual leave balances, a payroll implementation issue or a possible historical underpayment, early advice can make a real difference.
Tell us what is happening in your workplace. We will listen, help you understand the issue and talk you through the next steps.
Talk to our team about a confidential payroll compliance audit.
